East West Bancorp Reports Net Income for First Quarter 2013 of $72.1 Million, up 6% from Prior Year and Earnings Per Share of $0.50, up 11% from Prior Year
PASADENA, Calif.--(BUSINESS WIRE)-- East West Bancorp, Inc. ("East West") (NAS: EWBC) , parent company of East West Bank, the financial bridge between the United States and Greater China, today reported financial results for the first quarter of 2013. For the first quarter of 2013, net income was $72.1 million or $0.50 per dilutive share.
"East West is pleased to report solid earnings of $72.1 million or $0.50 per share for the first quarter of 2013, an increase in earnings per share of 11% from the prior year period," stated Dominic Ng, Chairman and Chief Executive Officer of East West. "This is the 8th consecutive quarter we have increased both net income and earnings per share. This strong operating performance is due to our healthy balance sheet, solid loan and deposit growth, reduced credit costs and strong expense control. Quarter to date, we increased total loans by $285.1 million or 8% annualized to a record $15.4 billion and grew total deposits by $626.3 million or 14% annualized to a record $18.9 billion while achieving strong expense control with an efficiency ratio of 43.28%. The quarter to date loan growth was fueled by strong demand for single family loans, commercial real estate loans and commercial and industrial loans."
Ng continued, "For the first quarter of 2013, East West achieved a return on average assets of 1.30%, and a return on average common equity of 12.45%, both increases from the prior quarter and the prior year periods and higher than many of our peers. Our solid balance sheet growth and strong earnings are complemented by our capital management activities, which included the buyback of $87.0 million of our common stock in the first quarter of 2013."
"2013 marks the 40th anniversary of East West Bank. Throughout our history, we have sought to outperform our peers, even in challenging operating environments. With our ability to grow our market share, find new business opportunities, operate our business efficiently, and meet and exceed the needs of our customers and employees, we are confident that we will continue to deliver strong financial results for the remainder of 2013 and beyond," concluded Ng.
Quarterly Results Summary
Dollars in millions, except per share
March 31, 2013
December 31, 2012
March 31, 2012
Net income available to common shareholders
Earnings per share (diluted)
Tangible book value per common share
Return on average assets
Return on average common equity
Net interest income, adjusted(1)
Net interest margin, adjusted(1)
Cost of deposits
First Quarter 2013 Highlights
Strong First Quarter Earnings - For the first quarter of 2013, net income was $72.1 million or $0.50 per dilutive share. Net income grew $191 thousand from the fourth quarter of 2012 and $4.0 million or 6% from the first quarter of 2012. Earnings per dilutive share grew 2% or $0.01 from the fourth quarter of 2012 and 11% or $0.05 from the first quarter of 2012.
Solid Return of Capital to Shareholders - During the first quarter 2013, we repurchased 3.5 million shares of our common stock for a total cost of $87.0 million. This capital action was in conjunction with the previously announced 50% increase in the quarterly common stock cash dividend from $0.10 to $0.15 per share.
Strong Capital Levels - Capital levels for East West remain high. As of March 31, 2013, East West's Tier 1 risk-based capital and total risk-based ratios were 14.1% and 15.6%, respectively, over $800 million greater than the well capitalized requirements of 6% and 10%, respectively.
Strong Loan Growth - Quarter to date, total loans (including both covered and non-covered loans) grew $285.1 million to a record $15.4 billion as of March 31, 2013. This growth was largely due to increases in non-covered single-family real estate loans, non-covered commercial real estate loans and non-covered commercial and industrial loans, which grew 7% or $147.6 million, 3% or $110.4 million, and 1% or $49.5 million, respectively. This growth in non-covered loans was partially offset by a decrease in loans covered under loss-share agreements of 6% or $183.3 million quarter to date.
Strong Deposit Growth - Total deposits increased to record levels, increasing 3% or $626.3 million to a record $18.9 billion as of March 31, 2013, driven by strong growth in core deposits. During the first quarter, core deposits increased by 6% or $713.3 million to a record $12.9 billion. The strong growth in core deposits was fueled by a 7% or $302.6 million increase in noninterest-bearing demand deposit accounts quarter to date to a record $4.8 billion as of March 31, 2013.
Reduction in Provision for Loan Loss and Net Charge-Offs - Net charge-offs on non-covered loans declined in the first quarter 2013 to $540 thousand, a 94% or $9.1 million decrease as compared to the fourth quarter of 2012. The total provision for loan losses was $4.3 million for the first quarter of 2013, a decrease of 67% or $8.8 million as compared to the fourth quarter of 2012.
Reduction in Noninterest Expense - Noninterest expense, net of FDIC reimbursement items totaled $96.4 million for the first quarter of 2013, down 2% or $1.7 million from the fourth quarter of 2012.1
The Company is providing guidance for the second quarter and full year of 2013. Management is reaffirming the guidance provided earlier in the year, and estimates that fully diluted earnings per share for the full year of 2013 will range from $2.00 to $2.04, an increase of $0.11 to $0.15 or 6% to 8% from $1.89 from the full year 2012. This EPS guidance for the remainder of 2013 is based on a stablebalance sheet, total loan growth of approximately $200 million per quarter (including both covered and noncovered loans), an adjusted net interest margin ranging from 3.50% to 3.60%1, provision for loan losses of approximately $2.5 million to $5.0 million per quarter, noninterest expense, adjusted for FDIC reimbursements, of approximately $95.0 million to $100.0 million per quarter, and an effective tax rate of 35%.
Management currently estimates that fully diluted earnings per share for the second quarter of 2013 will range from $0.50 to $0.51 per dilutive share, based on the assumptions stated above. Management has reduced the net interest margin guidance for 2013 from the previously released guidance due to the continued net interest margin compression resulting from the low interest rate environment. However, at this point, given our loan growth, reduced credit costs and ability to control funding and operating expenses, management believes that both net income and earnings per share growth for 2013 are achievable.
Balance Sheet Summary
At March 31, 2013, total assets increased $565.8 million or 3% to $23.1 billion compared to $22.5 billion at December 31, 2012. Average earning assets also increased during the first quarter, up 1% or $144.6 million to $20.7 billion compared to the prior quarter. The increase in average earning assets during the first quarter was primarily attributable to increases in average balances for non-covered loans.
Total loans receivable increased to $15.4 billion at March 31, 2013, compared to $15.1 billion at December 31 2012. This increase in loans receivable for quarter to date was due to growth in the non-covered loan portfolio, partially offset by a decrease in the covered loan portfolio.
Covered loans, net totaled $2.8 billion as of March 31, 2013, a decrease of $183.3 million or 6% from December 31, 2012. The decrease in the covered loan portfolio was primarily due to payoffs and paydown activity, as well as charge-offs.
The covered loan portfolio is comprised of loans acquired from the FDIC-assisted acquisitions of United Commercial Bank (UCB) and Washington First International Bank (WFIB) which are covered under loss-share agreements with the FDIC. During the first quarter of 2013, we recorded a net decrease in the FDIC indemnification asset and receivable included in noninterest (loss)/income of ($31.9) million, largely due to the continuing payoffs and the continuing improved credit performance of the UCB portfolio as compared to our original estimate.
At March 31, 2013, total deposits equaled a record $18.9 billion an increase of 3% or $626.3 million from $18.3 billion at December 31, 2012. In the first quarter of 2013, we continued to execute our strategy to grow low-cost, commercial deposits while reducing our reliance on time deposits. Core deposits increased to a record $12.9 billion at March 31, 2013, or an increase of $713.3 million or 6% from December 31, 2012. The strong increase in core deposits during the first quarter of 2013 was largely driven by an increase in noninterest-bearing demand deposits which increased by $302.6 million or 7% to a record $4.8 billion. Time deposits decreased by $87.0 million or 1% from December 31, 2012 to $6.0 billion at March 31, 2013.
First Quarter 2013 Operating Results
Net Interest Income
Net interest income, adjusted for the net impact of covered loan dispositions, totaled $184.6 million for the first quarter of 2013, as compared to $198.4 million for the fourth quarter of 2012 and $204.2 million for the first quarter of 2012. The core net interest margin, excluding the net impact to interest income of $24.7 million resulting from covered loan activity and amortization of the FDIC indemnification asset, totaled 3.62% for the first quarter of 2013. This compares to a core net interest margin of 3.84% and 4.21%, excluding the net impact to interest income of $46.5 million and $14.7 million resulting from covered loan activity and amortization of the FDIC indemnification asset, for the fourth quarter of 2012 and first quarter of 2012, respectively.1
The decrease in the core net interest margin and net interest income in the first quarter of 2013 compared to the fourth quarter of 2012 is due to a decrease in accretable income from covered loans, the continued downward repricing of the investment securities and loan portfolios and the additional deposit growth, and resulting excess liquidity. East West and the rest of the banking industry continue to be challenged by the extended low interest rate environment, resulting in downward pressure on the net interest margin. East West actively looks for opportunities to minimize our cost of funds and maximize our asset yields, while also ensuring prudent interest rate risk management.
The cost of funds decreased 4 basis points from 0.64% in the fourth quarter of 2012 to 0.60% in the first quarter of 2013. The reduction in the cost of funds and interest expense is primarily due to management's ongoing actions to reduce higher cost funding and time deposits, and grow core deposits. The Company increased core deposit balances by 6%, quarter over quarter. These combined actions resulted in an overall reduction in the cost of deposits of 3 basis point to 0.37% for the first quarter of 2013 from 0.40% in the prior quarter.
Noninterest (Loss)/ Income & Expense
The Company reported total noninterest (loss)/income for the first quarter of 2013 of ($2.1) million, an improvement from a noninterest loss of ($18.5) million in the fourth quarter of 2012 and a decrease from noninterest income of $21.7 million in the first quarter of 2012. The improvement of the noninterest (loss) from the prior quarter and the decrease from noninterest income for the prior year is primarily attributable to changes in the net reduction of the FDIC indemnification asset and FDIC receivable.
Branch fees, letter of credit and foreign exchange income, ancillary loan fees and other operating income totaled $24.0 million in the first quarter of 2013, a decrease of $2.9 million from $26.9 million in the fourth quarter of 2012 and an increase of $2.4 million from $21.6 million in the first quarter of 2012. In addition, included in noninterest income for the first quarter of 2013 were net gains on sales of investment securities of $5.6 million. A summary of fees and other operating income for the first quarter of 2013, compared to the fourth quarter of 2012 and first quarter of 2012 is detailed below:
($ in thousands)
March 31, 2013
December 31, 2012
March 31, 2012
Letters of credit fees and foreign exchange income
Ancillary loan fees
Other operating income
Total fees & other operating income
Noninterest expense totaled $96.4 million for the first quarter of 2013, a decrease of 8% or $8.9 million from the fourth quarter of 2012 and a decrease of 16% or $18.4 million from the first quarter of 2012.
Noninterest expense, excluding the impact of reimbursable (payable) amounts with the FDIC on covered assets and prepayment penalties for FHLB advances and other borrowings, totaled $96.4 million for the first quarter of 2013.1 A summary of noninterest expense for the first quarter of 2012, compared to the fourth quarter of 2012 and first quarter of 2012 is detailed below:
($ in thousands)
March 31, 2013
December 31, 2012
March 31, 2012
Total noninterest expense
Amounts to be reimbursed by the FDIC on covered assets (80% of actual expense amount)*
Prepayment penalties for FHLB advances
Noninterest expense excluding reimbursable amounts and prepayment penalties for FHLB advances
Pursuant to the shared-loss agreements, the FDIC reimburses the Company 80% of eligible losses with respect to covered assets. The FDIC also shares in 80% of the recoveries or gains with respect to covered assets. During the three months ended March 31, 2013, the Company had a net $61 thousand payable to the FDIC, mainly due to a net gain on sale of OREOs.
Total noninterest expense for the first quarter, excluding the impact of reimbursable (payable) amounts with the FDIC on covered assets and prepayment penalties for FHLB advances and other borrowings, decreased 2% or $1.7 million from the prior quarter to $96.4 million. The decrease in noninterest expense, quarter over quarter excluding the impact of reimbursable (payable) amounts with the FDIC on covered assets and prepayment penalties for FHLB advances and other borrowings, was due to a decrease in consulting expenses, amortization of investments in affordable housing partnerships, and credit cycle costs, offset by an increase in compensation and employee benefits. Credit cycle costs, which include other real estate owned expense, loan related expense, and legal expense decreased, totaling $7.0 million for the first quarter of 2013, as compared to $12.5 million for the fourth quarter of 2012.
The effective tax rate for the first quarter was 32.3% as compared to 33.5% in the prior quarter. The effective tax rate was reduced from the statutory tax rate primarily due to the utilization of tax credits related to affordable housing investments. Additionally, in the first quarter of 2013, the effective tax rate was reduced by the impact of $1.6 million due to the retroactive extension of certain exemptions as part of the American Taxpayer Relief Act of 2012 which was signed into law in 2013. Management expects that the tax rate for the remainder of 2013 will be approximately 35%.
For the first quarter of 2013, there was a reversal of provision for loan losses for non-covered loans of $762 thousand. This compares to a provision for loan losses of $13.8 million for the fourth quarter of 2012, and $16.5 million for the first quarter of 2012. Nonaccrual loans, excluding covered loans, totaled $127.2 million or 0.83% of total loans as of March 31, 2013, an increase of 18% or $19.1 million from the previous quarter and an increase of 5% or $6.4 million from the prior year. Correspondingly, nonperforming assets as of March 31, 2013, also increased from December 31, 2012, up 13% or $18.5 million to $159.5 million. The increase in nonaccrual loans from December 31, 2012 is largely due to one commercial and industrial loan which was matured and delinquent as of March 31, 2013. Management expects full payment of both principal and interest on this fully collateralized loan and expects it to be resolved in the second quarter of 2013.
Total net charge-offs on non-covered loans decreased to $540 thousand for the first quarter of 2013, down from $9.6 million in the fourth quarter of 2012. The allowance for non-covered loan losses was $228.8 million or 1.85% of non-covered loans receivable at March 31, 2013. This compares to an allowance for non-covered loan losses of $229.4 million or 1.92% of non-covered loans at December 31, 2012 and $214.3 million or 2.04% of non-covered loans at March 31, 2012. The total nonperforming assets, excluding covered assets, to total assets ratio has been under 1.0% for over three consecutive years with nonperforming assets of $159.5 million or 0.69% of total assets at March 31, 2013.
During the first quarter of 2013, the Company recorded a provision for loan losses of $3.1 million, on covered loans outside of the scope of ASC 310-30 and $2.0 million on covered loans within the scope of ASC 310-30. As these loans are covered under loss-sharing agreements with the FDIC, for any charge-offs, the Company records income of 80% of the charge-off amount in noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings of 20% of the charge-off amount.
(Dollars in millions)
March 31, 2013
Total Excess Above
Tier 1 leverage capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Tangible common equity to tangible assets ratio
Tangible common equity to risk weighted assets ratio
Our capital ratios remain very strong. As of March 31, 2013, our Tier 1 leverage capital ratio totaled 9.2%, our Tier 1 risk-based capital ratio totaled 14.1% and our total risk-based capital ratio totaled 15.6%.
The Company is focused on active capital management and is committed to maintaining strong capital levels that exceed regulatory requirements while also supporting balance sheet growth and providing a strong return to our shareholders. During the first quarter of 2013, the Company repurchased 3.5 million shares of common stock at an average price of $24.53 per share or $87.0 million in total cost. Under the stock repurchase program authorized by East West's Board of Directors earlier in the year, management has the authority to repurchase up to a total of $200.0 million of the Company's common stock.
Dividend Payout and Capital Actions
East West's Board of Directors has declared the second quarter dividends for the common stock and for the Series A Preferred Stock. The common stock cash dividend of $0.15 is payable on or about May 13, 2013 to shareholders of record on April 26, 2013. The dividend on the Series A Preferred Stock of $20.00 per share is payable on May 1, 2013 to shareholders of record on April 15, 2013. Today, East West has announced the mandatory conversion of all Series A Preferred Stock as of May 1, 2013, at the option of the Company. The Series A Preferred Stock will be converted into approximately 5.6 million shares of common stock.
East West will host a conference call to discuss first quarter 2013 earnings with the public on Thursday, April 18, 2013 at 8:30 a.m. PDT/11:30 a.m. EDT. The public and investment community are invited to listen as management discusses first quarter results and operating developments. The following dial-in information is provided for participation in the conference call: Calls within the US - (877) 317-6789; Calls within Canada - (866) 605-3852; International calls - (412) 317-6789. A listen-only live broadcast of the call also will be available on the investor relations page of the Company's website at www.eastwestbank.com.
About East West
East West Bancorp is a publicly owned company with $23.1 billion in assets and is traded on the Nasdaq Global Select Market under the symbol "EWBC." The Company's wholly owned subsidiary, East West Bank, is one of the largest independent banks headquartered in California. East West is a premier bank focused exclusively on the United States and Greater China markets and operates over 120 locations worldwide, including in the United States markets of California, New York, Georgia, Massachusetts, Texas and Washington. In Greater China, East West's presence includes a full service branch in Hong Kong and representative offices in Beijing, Shenzhen and Taipei. Through a wholly owned subsidiary bank, East West's presence in Greater China also includes full service branches in Shanghai and Shantou and a representative office in Guangzhou. For more information on East West Bancorp, visit the Company's website at www.eastwestbank.com.
Certain matters set forth herein (including any exhibits hereto) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company's current business plans and expectations regarding future operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to, local, regional, national and international economic, political or industry conditions and events and the impact they may have on us and our customers; our ability to attract deposits and other sources of liquidity; continued deterioration in values of real estate in California and other states where our bank makes loans, both residential and commercial; our ability to manage the loan portfolios acquired from FDIC-assisted acquisitions within the limits of the loss protection provided by the FDIC; changes in the financial performance and/or condition of our borrowers; changes in the level of nonperforming assets, reserve requirements, and charge-offs; the effect of changes in laws, regulations, and accounting standards, and related costs of these changes;inflation, interest rate, securities market and monetary fluctuations; changes in the competitive environment among financial and bank holding companies and other financial service providers; changes in our organization, management; the adequacy of our enterprise risk management framework; the ability to manage our growth and the effect of acquisitions we may make and the integration of acquired businesses and branching efforts; our success at managing the risks involved in the foregoing items and other factors set forth in the Company's public reports including its Annual Report on Form 10-K for the year ended December 31, 2012, and particularly the discussion of risk factors within that document.
1 See reconciliation of the GAAP financial measure to the non-GAAP financial measure in the tables attached.
EAST WEST BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, 2013
December 31, 2012
March 31, 2012
Cash and cash equivalents
Securities purchased under resale agreements
Loans receivable, excluding covered loans (net of allowance for loan losses of $228,796, $229,382 and $214,253)
Covered loans, net